Accrued HSA funds have a broad range of acceptable uses.
One of the main differences between a flexible spending account and a health savings account is that the funds in an HSA can roll over and accumulate from year to year. The Internal Revenue Service permits you to use these funds on a tax-free basis for a wide range of health-related expenses, including some insurance premiums.
Long-Term Care Insurance
Long-term care insurance premiums are deductible up to a limit that is set by the IRS each year, based on your age. The maximum deductible amount will be found in the instructions for filling out Schedule A for a 1040 tax return. Long-term care insurance is considered a qualified medical expense, so funds can be withdrawn from your HSA tax-free to pay for the premium.
COBRA Coverage
If you need to carry COBRA insurance coverage to maintain continuous insurance coverage in between group insurance policies, HSA funds can be used to pay COBRA premiums for you, your spouse or one of your dependents. If you use funds from your HSA to pay COBRA premiums, the withdrawal is tax-free. As a result, you cannot claim the health coverage tax credit on your income tax return.
Insurance Premiums While Collecting Unemployment
If you are collecting unemployment benefits and have health insurance premiums that are not COBRA-related coverage (like an individual policy), you can pay those premiums from your HSA. You can also pay premiums for a spouse or dependents from you HSA if you are currently employed, but your spouse or dependent is collecting unemployment.
Medicare Premiums
Once you reach age 65, you have the option of paying your Medicare premiums through your HSA instead of deducting them from your Social Security payments. Even though you can pay Medicare premiums through your HSA, supplemental, or "Medigap" insurance premiums, are not eligible expenses. Also, if you are the beneficiary of the account, you cannot pay Medicare premium expenses for a spouse or dependent over age 65 from your HSA if you are not at least 65 years old.
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